USAA seeks licensing fee from banks for electronic deposit technology

USAA has sent out hundreds of letters seeking licensing fees for the intellectual property used to develop electronic deposit across the industry.

USAA has sent out hundreds of letters seeking licensing fees for...

Officials at financial services giant USAA say their company developed the technology used by banks across the world to allow customers to deposit checks electronically, and it’s about time other institutions “pay their fair share.”

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The San Antonio company is reaching out to banks and credit unions across the country offering a “licensing program” to pay for patented technology surrounding “remote deposit capture” capabilities it developed in 2005.

Online banking represented a sea change in the banking industry after Congress passed new laws in 2003 allowing lenders to handle more checks electronically — much like the ATM did when the first one was installed in London in 1967.

Mobile deposit, which came along a few years later, has been quickly adopted by consumers as more people use mobile apps and websites to conduct financial transactions. Consumers wrote about 19.4 billion checks with a value of $27.3 trillion in 2015, according to the most recent statistics from the Federal Reserve Board in Washington, D.C. Financial services research and consulting firm Celent projected that about a third of all checks were deposited electronically in 2015 and about half were last year.

USAA has sent out hundreds of letters seeking licensing fees for its intellectual property, which the bank says it has patented, and “asked banks and credit unions to reach out to us proactively to discuss the licensing program,” said Neff Hudson, vice president of corporate development at USAA. Hudson oversees USAA’s patent licensing program and equity pipeline.

So far it is unclear what impact this might have on the industry. Several banks that were contacted either declined to comment, or did not respond. But if USAA is able to convince or cajole the industry into paying, it could be a windfall depending on how the fees are structured.

“The reality is that it was invented here in San Antonio,” Hudson said. “It was invented here in San Antonio with money that our members give us to improve our business. And we have never received fair value for it in the marketplace.”

San Antonio patent attorney Ted Lee said if companies do not choose to pay up, then the next step would be for USAA to sue, which can be expensive, “especially one like this.”

“If you don’t enforce your patents, what good are they?” he said. “If I was USAA, and if I had patents that covered remote deposit capture technology, if I had it and other people were using it, I’d either want people to pay me a royalty for its use or stop using it.”

USAA, which serves members of the military and their families, has about 50 patents associated with the technology, according to Hudson.

“This was an amazing groundbreaking technology,” he said. “It was invented for military people, and at the same time it has absolutely helped change the industry. From our perspective we’ve been really gratified to see that; we also need to make sure we get fair value for it because it is USAA-patented technology and it was paid for by our membership.”

As for what banks might pay for the license, Hudson said that depends on “a couple of variables.” USAA is sharing its approach to pricing in conversations with banks to get feedback, he said.

“We have had some folks reach out and indicate a willingness to take part in the licensing program, but it’s still early in the process,” he said.

The licensing fee is purely for use of the intellectual property, not for technical support, Hudson said.

“This is really a license to keep what they already are using. So no technical integration is required. It’s just that we believe that the underpinning technology was provided by USAA,” Hudson said. “I don’t want to get into where they might have bought their solution, or what kinds of agreements banks may have with their vendors, but the bottom line is they’re using this technology, they’re using USAA technology for it.”

The Bank of San Antonio licenses remote deposit capture technology from a company called Jack Henry & Associates Inc., said J. Bruce Bugg, chairman of The Bank of San Antonio, which had $699 million in assets as of March 31.

“I have not seen the letter and don’t know what they are claiming intellectual property rights to,” Bugg said. “We contract directly from Jack Henry to provide our IT, and so that’s really a question between USAA and Jack Henry because our intellectual property comes through that IT provider.”

Bugg confirmed that if USAA sent a letter, he would direct the company to contact Jack Henry.

Jack Henry declined to comment for this article.

The big question that remains is what USAA might do if companies don’t pay.

“Right now now we’re really focused on the licensing program, and we are hopeful and optimistic that they will voluntarily comply with this licensing program,” Hudson said in response. “We’re not considering other options at this point.”

USAA is no stranger to controversy around its remote deposit capture technology: In March 2012, it accused San Diego, California, software company Mitek Systems Inc. of fraud and theft of USAA’s proprietary information relating to remote deposit capture technology, the Express-News reported at the time.

Mitek then filed a countersuit claiming USAA’s use of its Deposit@Mobile application infringed on five Mitek patents.

USAA’s foray into remote deposit capture started in 2005, when staff in its research lab developed a prototype that allowed them to use an inexpensive home scanner to scan a check, said John Brady, vice president and chief architect at USAA.

“This was a lab environment,” Brady noted, “My initial reaction was: How is this ever going to work? Right? It seemed like there were a lot of problems, a lot of barriers, so how do we go from this early prototype to something that was scalable?”

But active-duty soldiers in far-flung places of the world with little access to traditional banks needed to be able to deposit checks from anywhere, Brady said.

USAA’s CEO eventually gave permission for the idea to move forward with a caveat: He wanted the concept to be deployed in a live production environment in a month, Brady said.

“While I really didn’t encourage these guys to work around the clock, everybody was really so excited it was hard to pull the team away, and they ended up working almost 24 hours a day during this time,” Brady said of the month they spent developing the technology. “In fact, there was one point where I had to tell one of the developers to go home and take a shower because he was so dedicated.”

Some of the things the team figured out during that time were how to locate a check on the scanner bed, crop the check and process the images, Brady said.

When the month was almost up, USAA did a production test, Brady said. It worked.

“That was kind of the foundation for what we did going forward,” Brady said. “And over the next several years we ended up really enhancing the deposit home product, and then as mobile phones came out with cameras on them it really was a perfect platform to launch the deposit mobile product as well, using that same technology.”

Hudson is quick to note that remote deposit capture is “as big of a change in the industry, arguably, as an ATM was.”

“USAA has a long history of innovation,” Hudson said. “But the reality is that this changed an industry.”